Thursday, 10 August 2017

Korean crisis weighing on US equity indexes; PPI in focus

Wall Street stock indexes were set for a lower open on Thursday pre-session hours, with investors preparing for July’s first inflation report later in the day, the producer price index.

US markets ended in red territory on Wednesday, with geopolitical tensions in the Korean peninsula intensifying in the light of a missile threat to Guam, an unincorporated US territory located in the western Pacific Ocean.

After President Donald Trump said any threat by North Korea will be met with “fire and fury”, Kim Jong-un’s government responded it is “carefully examining” the possibility of launching a series of missiles on the American island.

Such decision would of course have serious consequences for the entire world, both in economic and political terms. A missile strike on Guam is clearly an act of war against the United States and according to analysts, Pyongyang is not ready to take that path.

Following this line of thought, markets are expecting a rebound on the back of expectations that this geopolitical crisis will soon be forgotten, promoting risk-on sentiment across the board.

However, we’ve seen a jump on safe-haven assets such as gold, the euro and the Japanese yen in the previous session. In most cases, gains are likely to be reverted in the near-term.

The Dow Jones industrial average dropped 36.64 points to end at 22,048.70 on Wednesday, with entertainment giant Walt Disney dragging the index to the downside. According to Disney’s second-quarter earnings report, the company came short of expected gains in two categories.

Meanwhile, the S&P 500 remained close to breakeven at 2,474.02, with utilities pushing it down. The tech-heavy Nasdaq composite eased 0.28 percent to finish at 6,352.33.

Dow Jones Industrial Average: -36.64 / -0.17% / 22048.70

Standard & Poor’s 500: -0.90 / -0.04% / 2474.02

Nasdaq Composite: -18.13 / -0.28% / 6352.33

On the data front, a preliminary reading on the nonfarm productivity said it rose 0.9 percent in the second quarter, up from an initially estimated 0.7 percent. Unit labor costs were seen lower at 0.6 percent, while analysts had forecasted a 1.2 percent build.

The menu of the day includes July’s producer price index as of 12:30 GMT, with expectations for a 0.1 percent increase. Initial jobless claims are seen at 240,000. The Federal Budget Balance will be available at 18:00 GMT. FOMC Dudley will speak at 14:00 GMT.Fort Financial Services